Accounting Management Decision Making

Question: Discuss about the Accounting For Management Decision Making ? Answer: Introducation: Successful decisions must be based on the relevant and valid information. Information may take different forms and accounting information is one of them. Accounting information is important and useful for all users. Accounting information is publicly available to all stakeholders for decision making (Collier, 2015). With the help of accurate and valid accounting information, users can gain competitive advantage. To satisfy information needs of all users, different accounting reports and financial statements are prepared. Decision making process will not be effective if decisions are not based on relevant information. The primary purpose of accounting information is to cope with uncertainty (Lambert, Leuz Verrecchia, 2007). For a while if we assume that accounting information is not available then business decision will look like gambling. Accounting information and accounting reports have made business decisions more reliable and satisfactory (Bushman, R. M., Smith, 2001). Apart fr om decision making, accounting information also impact on other aspects of business such as growth, share price, shareholders wealth maximization and satisfied stakeholders. Almost every decision about business field requires accounting knowledge and basic understanding (Leuz, Nanda Wysocki, 2003). Basic knowledge of accounting is necessary to read and interpret the financial reports and financial statements prepared by accounting department. All stakeholders and management of business must know the basics of accounting and finance to carry their role effectively and efficiently. At the time of projecting financial statements and financial planning, every individual is required to perform his or her responsibility. Without basic accounting knowledge, it is difficult to participate in financial planning. Good corporate governance is very important and crucial for success of listed corporations. Corporations are required to follow basic corporate governance principles to satisfy shareholders and gain competitive advantage. Sharing financial information with investors is not a matter of privacy in case of public listed companies. If Max wants to issues shares of Sonumatics then he must follow all corporate governance principles (Collett Hrasky, 2005). This principle of corporate governance will increase effectiveness and avoid possible confusion and overlapping of responsibilities. Board members should be committed and loyal with the listed company that enhances value of the firm. Ethics and responsibility is also the most crucial corporate governance principle of listed companies at Australia stock exchange (ASX Corporate Governance Council, 2014). Human resource must not be forced to perform certain tasks. There should be equality and clarity in selection process of employees. Regar ding the problem of Max Brenner, fourth principle of corporate governance of Australian Stock Exchange suggests that there should be integrity in corporate reporting (ASX Corporate Governance Council, 2014). Public listed companies must share true and reasonable financial information to all stakeholders. The decision of investors, suppliers, government and other stakeholders are based on the statements of financial position and other financial data. On one hand Max wants to issue shares of Sonumatics and on other hand he does not want to give investors right of decision making. All shareholders are owners and posses the right to vote for every material decision. Max should disclose all relevant accounting information and issue less shares or hold more than 50% of issued shares to maintain control of ownership. Balance sheet is also known as statement of financial position because it tells the assets company holds at the period of time. Balance sheet is one of the most important and crucial financial statements which is frequently used by investors (Aghion, Bacchetta Banerjee, 2004). Balance sheet of corporation significantly differs from proprietorship. Balance sheet of turner manufacturing is a single owner balance sheet with more debt financing. As sole proprietor has unlimited liability therefore, debt financing is very dangerous (Van Auken, H. E., Neeley, 1996). Current assets are more than current liability which means that firm is liquid. Current ratio of Turner Manufacturing is 2.48 while industry average of current ratio is 1. Turner Manufacturing has the ability of paying short-term debt using current assets. Quick ratio is also measure of liquidity position that excludes inventory from current assets (Saleem Rehman, 2011). Quick ratio or acid test ratio of Turner Manufacturing is 1.33 which is significantly higher than industry average of 1. Financial position of this firm is not so good because total assets are very low. This firm has used more debt that can lead to bankruptcy (Dahiya, John, Puri Ramrez, 2003). Debt to equity ratio of this firm is 3.21times which is well above the industry average. Statement of financial position of Turner Manufacturing tells that this business depend on debt financing rather than equity financing. Retained earnings or profit shown in balance sheet communicate that owner want to grow business by reinvesting retained earnings. There are four major business structures which are sole proprietorship, Partnership, Corporation and Limited Liability Company. Any individual or group that is directly or indirectly related to business is known as stakeholder (Bryson, 2004). Stakeholders are directly or indirectly affected by company action or can affect business due to its relation with business. Stakeholders include customers, employees, suppliers, government, competitors and shareholders or investors. Stakeholders for single owner business include supplier, customer, employees and competitor (Chinyio Olomolaiye, 2010). Stakeholders of partnership include owners, employees, customers, suppliers, competitors and government. Stakeholders of corporation include customers, employees, shareholders, lenders, government authorities, suppliers, competitors and other communities. All stakeholders have different needs and demands and business should complete these needs and demands. Customers need quality of product and competitive price. Shareholders want to maximize their wealth which is major responsibility of management of business entity. Suppliers need payment of supplies on due date and strong relationship with business entity. Lenders want from business entity to pay outstanding amount on promised date. Government authorities want all information to be provided on time and compliance with rules and regulations. Employees need competitive salary and bonuses along with promotion to higher level management. Business entity must fulfill needs and demands of stakeholders to be ethical and successful in long term. Yes, stakeholders choice significantly affects the type of business. Demands and needs of stakeholders vary with type of business (Murillo?Luna, Garcs?Ayerbe Rivera?Torres, 2008). There are many stakeholders of corporation which does not demand from partnership or single owner business. Communities and individuals from peripheral areas of single owner does not want owner to invest and fulfill corporate social responsibilities. References ASX Corporate Governance Council, 2014., Corporate Governance Principles and Recommendations. ASX Corporate Governance Council. 3rd edition. Data retrieved from https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf Bushman, R. M., Smith, A. J. (2001). Financial accounting information and corporate governance.Journal of accounting and Economics,32(1), 237-333. Data retrieved from https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.467.6157rep=rep1type=pdf Bushman, R. M., Smith, A. J. (2003). Transparency, financial accounting information, and corporate governance. Data retrieved from https://s3.amazonaws.com/academia.edu.documents/39301807/0304bush.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3AExpires=1490415917Signature=YpN2aVPA3PK1LjZ%2BzBSaMrvo%2FAw%3Dresponse-content-disposition=inline%3B%20filename%3DTransparency_Financial_Accounting_Inform.pdf Chinyio, E., Olomolaiye, P. (2010). Introducing stakeholder management.Construction stakeholder management,1. 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Evidence of bootstrap financing among small start-up firms.The Journal of Entrepreneurial Finance,5(3), 235. Data retrieved from https://www.econstor.eu/bitstream/10419/114705/1/jef-1996-05-3-d-vanauken.pdf